By Sophie Knight
TOKYO (Reuters) - Japan's Nikkei rallied 0.5 percent on Monday as investors turned buyers after a broad sell-off last week, though concerns lingered over the earnings outlook for Japanese corporates.
Buyers were encouraged by Chinese inflation data that signalled Beijing had room to ease policy further to shore up growth in Japan's main export market.
The index's advance was held back, however, by Softbank Corp's <9984.T> 5.3 percent fall to a 5-month closing low due to
fears that the mobile phone provider would pay too much to buy out Sprint Nextel Corp , after it was reported that the deal could be worth $20 billion.
Softbank's stock hit an 8-month intraday low as sources said the Japanese mobile carrier would provide $8 billion of new capital and acquire an additional $12 billion worth of shares from Sprint shareholders, funded by a 1.65 trillion yen loan from four banks.
"It's the same reaction as when they said they were going to buy Vodafone a few years ago, everyone came out and said it was far too expensive," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.
The purchase would give Softbank a 70 percent stake and imply the U.S. company was worth about two-thirds more than its market capitalisation at Friday's close.
"(However), I think investors will realise (Softbank CEO) Masayoshi Son is making the right decision further down the road," he added.
The telecommunications sector <.ICOMS.T> fell 1.7 percent as investors bet that rivals such as KDDI Corp <9433.T>, which lost 2.4 percent, would suffer from Softbank's increased competitiveness as it expands overseas.
The Nikkei closed 0.5 percent up at 8,577.93 yen, recovering from a 2-month low struck on Friday after losing 3.7 percent on the week due to worries over profit warnings at the outset of the earnings season.
"Today people are just consolidating after a lot of bad news last week, because there's no reason to keep on selling today," said Kyoya Okazawa head of global equities at BNP Paribas.
"There are also growing expectations that the Bank of Japan will ease again at the end of the month, which is helping shares most sensitive to the economic climate today."
Cyclicals were in favour, with the iron and steel sector moving up 1.6 percent while shippers rose 1.8 percent. The broader Topix index firmed 0.7 percent to 722.99 in moderate trade, with volume striking 102.3 percent of the average of the last 90 days.
Risk sentiment was also boosted by hopes for economic stimulus from China after the country's annual rate of consumer price inflation came in line with expectations of 1.9 percent in September, while producer prices fell for the seventh straight month.
Chinese trade data released over the weekend was also positive, with exports growing at roughly twice the rate expected in September.
For all the worries over the outlook for earnings generally, construction machinery maker Komatsu Ltd <6301.T> gained 4.3 percent and was the second-most traded stock by turnover on the main board after the Nikkei business daily said the firm's operating profit for the first half would likely meet company guidance of around 111 billion yen.
"Meeting expectations in this kind of market is actually a positive. People are just glad it's not any worse," said Yoshihiko Tabei, chief analyst at Kazaka Securities.
Hopes for Chinese stimulus and higher demand helped automakers Nissan Motor Co <7201.T>, Honda Motor Co <7267.T> and Toyota Motor Corp <7203.T> gain between 1.4 a n d 3.9 p e rcent, after suffering during the past month from concerns about the fall-out on their sales in China as a result of territorial dispute between Beijing and Tokyo.
By last Thursday, when Toyota said its sales to China in September had been nearly halved from the same month a year ago, the firm's share price had lost up to 12.4 percent since the dispute flared in mid-September.
Weakness in carmakers, precision machinery and other economically sensitive sectors have weighed on the market as a global slowdown and a persistently high yen triggered profit warnings ahead of the earnings season.
That has left stocks looking reasonable, with the stocks on the first section of the Tokyo Stock Exchange, made up of Japan's biggest companies, trading on average below book value with a price-to-book ratio of 0.9, according to Thomson Reuters Starmine, compared to the S&P 500's price-to-book ratio of 2.2.
(Editing by Simon Cameron-Moore)